Despite the Chancellor’s pre-budget report announcing an intent to push long-term fixed-rate mortgages, a survey of 200 financial advisers showed that the longer the mortgage term, the less popular the product.
Financial advisers were asked to rate the popularity of different fixed-rate terms, and the results indicate that the majority of mortgage borrowers choose short-term deals.
Two-year fixed-rate deals top the popularity list, followed by three and five-year rates. In what will be bad news for Alistair Darling, lifetime mortgages and 10-year fixed-rate deals are the least popular with financial advisers’ customers.
Overall, fixed-rate deals remain by far the most popular type of mortgage, with 58% of customers applying for a mortgage via a financial adviser during the third quarter opting for a fixed deal. Base rate tracker mortgages were the second most popular, with 27% of customers choosing this mortgage type, followed by discount mortgages with no cashback offer, with 11%.
The Chancellor announced in his Pre-Budget Report that he wanted to make it easier for lenders to fund 10-year fixed-rate mortgages and is set to unveil more details in his full budget next year. However, with 29 10-year fixed-rate deals already on offer from 10 different lenders, it is questionable whether there is the demand for more long-term mortgage products.
John Heron, managing director of Paragon Mortgages says: “Various high street lenders have tried offering long-term fixed-rate products, only to take them off the market shortly after due to a lack of appetite. There are advantages and disadvantages of longer-term mortgage deals, but it seems strange that the Chancellor is trying to promote 10-year mortgages when there appears to be limited demand from consumers.”
However, Heron warns that borrowers need to look beyond the headline rate when selecting their mortgage and should consider the overall cost of the product, including fees. He said: “Financial advisers do an excellent job of advising people on the right product for their needs and financial situation, but borrowers should make sure they don’t just opt for the lowest headline interest rate – they must take a longer term view about the risks they can afford to take. The suitability of a loan to an individual’s needs is vital.”
